Sun, Jun 17, 2012 - Page 10 News List

European stocks climb on credit-easing measures

Bloomberg

European stocks advanced for a second week as Greeks prepared to vote, after the Bank of England (BOE) announced credit-easing measures, boosting optimism central banks would take steps to stimulate the global economy.

The STOXX Europe 600 Index rose 0.9 percent to 244.21 this week. It is still down 10 percent from its high on March 16 amid growing concern that Greece may be forced to leave the euro currency union after the elections today.

“There is a green light for more stimulus as inflation comes down, which means central banks can be stimulative,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. “Rising German bund yields this week on Tuesday and Wednesday have also seen more money come into equities from bonds, as the potential risk of Germany having to help the eurozone increases.”

National benchmark indexes climbed in 15 of the 18 western European markets this week. The UK’s FTSE 100 gained 0.8 percent. France’s CAC 40 rose 1.2 percent and Germany’s DAX added 1.6 percent. Spain’s IBEX 35 rallied 2.6 percent and Greece’s Athens Stock Exchange Index jumped 14 percent.

BOE Governor Mervyn King said in a speech on Thursday that the case for more stimulus in the UK was growing. He also unveiled two plans to improve cash supply to the banking system.

A “funding-for-lending” program will allow banks to swap assets with the BOE for money to be loaned to their customers. The central bank will also activate an unused facility to inject at least £5 billion [US$7.8 billion] a month into the system at a minimum rate of 25 basis points more than the benchmark interest rate, now at a record low of 0.5 percent.

European Central Bank President Mario Draghi said there were no inflation risks in the 17-nation euro area and vowed the central bank would continue providing liquidity to solvent lenders.

EU leaders will press for new efforts to boost the 27-nation area’s economy and improve lending conditions, according to a draft document prepared for a June 28 to 29 summit in Brussels. Steps include introducing so-called project bonds, making better use of EU infrastructure funds and increasing the capital, and therefore lending power, of the European Investment Bank, according to the draft on Tuesday.

Europe’s turmoil forced Spain last week to ask for a bailout of its banks that may run as high as 100 billion euros (US$126 billion), making it the fourth and largest eurozone economy to seek aid. Spain’s 10-year bond yield vaulted to 7 percent on Thursday, fueling speculation that the world’s 12th-biggest economy may need a full rescue.

Italy’s 10-year yield reached a four-month high of 6.22 percent on Wednesday.

Moody’s cut Spain’s rating by three steps to “Baa3” from “A3” on Wednesday, citing the nation’s increased debt burden, weakening economy and limited access to capital markets.

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